Australian building construction prices are showing signs of revival, influenced by rising activity in the housing sector and the impact of the BER stimulus package on the non-residential construction sector, according to international property and construction consultants, Davis Langdon.

Producer Price Indices released today by the Australian Bureau of Statistics indicate that the cost of building is beginning to rise after declining in most markets and sectors through 2009.

Davis Langdon senior economist Dr Andrew Wilson said the ABS findings were consistent with Davis Langdon construction sector research late last year when the company urged builders and developers to lock in contracts where possible because of a pending increase. He said the prices were expected to continue to rise throughout 2011.

Dr Wilson said according to the ABS, Australian weighted building construction costs rose by 0.65% in the March quarter of 2010, the strongest rise since 2008.

“All sectors contributed to this outcome with the cost of housing rising by 0.83% and non-residential construction costs rising by 0.46%,” he said. “The rise in non-residential construction costs was the first significant price rise in the sector since September 2008, prior to the impact on the market of rising interest rates and the GFC.”

The ABS figures showed New South Wales led the major state markets with a rise of 0.94% in building costs for the quarter. Most state markets recorded moderate price growth through all sectors, particularly housing construction.  Dr Wilson said Western Australia recorded the strongest rise in housing costs with a quarterly increase of 1.35%. However, non-residential construction costs in that state continue to decline reflecting the continued hangover from the high levels of activity of the previous commercial building boom, he said.

Dr Wilson said a revival in apartment construction activity in New South Wales and Victoria also appears to have contributed to price increases in the general residential sector according to the ABS.

“As the impact wanes on the construction industry of the BER stimulus package and other government spending measures, and with continued weakness in the commercial property sector, builders will face higher levels of competition in tender markets as they struggle to replace diminishing workloads,” he said. “Increased tender completion and the impact of higher interest rates on housing demand, will act as a break on emerging building cost pressures through 2010."

However, an expected acceleration in general economic activity, particularly in Western Australia and Queensland as a consequence of the emerging international resources boom, and to a lesser degree Victoria through its rapid population growth, should see building price pressures re-emerge and accelerate through 2011, said Dr Wilson.

For further information, contact Meaghan Jones on +61 3 9933 8800 or email mjones2@davislangdon.com.au